Buying second IP seeking advice on locale and loan structure

My partner and I recently bought our first IP in Margate (Redcliffe area) north of Brisbane. It's 2bdrm house that we purchased for $310 mortgage of $280 and are renting for $300per week. We have some some minor renos including bathroom, kitchen tiling and new fittings, removed a wall, new BIRs, paint and floor thoughout and just about to apply for pre approval to purchase a second IP. Our thoughts are to buy similar property being a house around or under $350k (for serviceability) looking in South west Sydney this time (Campbelltown area and also looking at suburbs in Melbourne such as Melton, sunshine, cranebourne, or a unit in Cairns) tnoughts/opinions would be appreciated :)
I am also looking for advice or any tips on how to structure our "second loan" at this point I am thinking we just go back to our broker and see what she suggests as we are not sure of the best option. The loan on our first IP is IO with offset attached and our income is building up nicely in the offset I'm just not too sure how the "second loan" should be structured or how it works.
 
I would avoid Melton if you can - I don't see much growth happening there for the foreseeable future. Too much land between Caroline Springs and Melton to be filled in. Better investments out there if you ask me.

Any reason you've also narrowed down a unit in Cairns? You might be able to find a cheap one with good rental return but that CF will quickly be absorbed by the high body corp fees. The rental market is tight at the moment and I don't see that easing up any time soon and there are some good buys on the Northern Beaches but need to be wary of the body corp.

Main tip for loan structure is don't cross collateralise your second loan with your first. Have it as a stand alone security. Assuming your broker is IP savvy they should be able to guide you on what the best structure is taking into consideration current and future purchases.
 
Thanks kinnon bell for that advice.

I agree on the land issue re Melton.
Any other suggestions re locale?

Re: unit in cairns purchase- reason was that research I have done seems to indicate cairns market (along with most touristy areas of qld) will recover, and also affordability- we don't want to purchase anything with a larger mortgage then say $350 atm (early days and being cautious to ensure we don't over extend ourselves) we were looking at 2bdrm units in older complexes with low body corp fees and not a CG property as such but more in view of cash flow as we thought that would help us to continue to borrow and expand our portfolio.
 
Agree with Kinnon, stay well clear of Melton and also Cranbourne in Melbourne.
Also what is your strategy? I would refine that if I were you instead of picking suburbs blindly. Your suburbs suggests that you may not have thought about this?
 
Albanga,

Thanks for the comment.
In regard to strategy- your probably right i more than likely do need to 'refine' same. As prev stated it is early days- we have a few goals (short and longer term which are to accumulate multiple property's and hold them for long term growth for retirement purposes (I am 29 atm) and also to ultimately fund the purchase of our "dream home" so the steps we are taking now are to work toward this. Stratergy wise- buy old home in need of Reno so as to create equity from improvements and buy in areas close to CBDs which are undervalued compared to neighbouring suburbs and that have growth potential due to infrastructure and other factors. I do try and read a lot and research- I hope I'm not making bad choices but those are my plans and goals.
Thanks again for taking the time to reply.
 
Hi Smiddo
As mentioned previously high BC fees due insurance premiums have badly affected the Cairns unit market at the present time. Vacancy rates are low and rents are high, there is presently a government taskforce considering ways to make premiums more realistic for unit blocks in particular, this has been on going for several years but unfortunately at this point in time BC fees will reduce a 8-10% gross yield to something closer to 5% as a generalization. There are some small blocks with much lower fees but these often get purchased fairly quickly. Suncorp have announced that they are doing some work in this area to more accurately determine risk with the goal being to reduce premiums for newer better built blocks which meet an appropriate cyclone rating. Older buildings in poor condition which are far more likely to suffer damage will see higher premiums potentially .This will likely lead to lower premiums for units and when it occurs will likely see unit prices surge from there current very depressed levels. There are some good buys to be had but BC fees will determine this presently. Houses prices have increased in the past year and units most likely will also once insurance premiums improve.
Interestingly no major weather events have occurred here since 2011 and even then units in Cairns were largely untouched yet weather events elsewhere along the east coast have occurred regularly yet premiums do not reflect this presently.
 
Thanks hugh72 for the reality check :)
I believe you are right in relation to insurance and BC fees reducing the yield.
I think it was mainly the lure of a cheap buy that I saw.
So back to the drawing board on the topic of locale I quess!
The more I read the more I find including unfortunanley negative issues relating to certain areas such as above mentioned and things like over supply of land etc

Melbourne suburbs still appeal to me: mainly for affordability, and diversification as my first property is in brisbane area.
Any opinions or thoughts on Melbourne suburbs? Sunshine, cranebourne etc?

And I'm still open to thoughts and opinions on loan strategy for second property.
Thanks in advance :)
 
Thanks kinnon bell for that advice.

I agree on the land issue re Melton.
Any other suggestions re locale?

Re: unit in cairns purchase- reason was that research I have done seems to indicate cairns market (along with most touristy areas of qld) will recover, and also affordability- we don't want to purchase anything with a larger mortgage then say $350 atm (early days and being cautious to ensure we don't over extend ourselves) we were looking at 2bdrm units in older complexes with low body corp fees and not a CG property as such but more in view of cash flow as we thought that would help us to continue to borrow and expand our portfolio.

No worries :)

Re locale is a very 'how long is a piece of string' question. Different markets will suit different strategies. Best to define what your strategy is then find a market to fit that.

Cairns is in recovery at the moment and there are some good buys out there that have the CG potential and CF element but without more development on the insurance reform I would avoid units at the moment unless it's a cracker of a deal.
 
Hi Smiddo

We are in same boat, I bought by first IP in Birssy before few months and looking for second one now and we are of same age :). I was thinking if I should review other options then Brissy since I have one property there for diversification and was thinking of Adl but finally worked out if numbers and time are working in favour, there is no harm on repeating what you have done.

I am now planning to buy second one in Brissy as well. Considering Redcliffe\North lakes area. My first one is in Bracken Ridge. Have a think about it if you still want to consider Brissy for second property without restricting yourself.

Did you do the renos yourself or hired some one to run the project for you? I am not sure how to run reno project being interstate.
 
Hi

Hello,

Melbourne property market is starting to really heat up at the moment. I would strongly suggest to stay away from areas such as Melton, Caroline Springs and Cranbourne.

With a $350,000 budget, Sunshine is out of reach. Maybe look at areas like Deer Park, Ardeer or Albion.
 
How about Braybrook? I saw a 600 sq house going on auction asking 450+
however it was sold last year for 526K :D. rental return of 320
 
Thanks to all for comments

Still don't know or understand much (if anything) re second loan. I will see a broker soon re same. I believe we use the equity in first loan for deposit for second loan? First is IO with offset, second would be IO also? Any tips appreciated

Avs the reason we are looking elsewhere rather than Brisbane is diversification for one and also the market is already on way up price wise from what I can see so thought better try for a location where prices haven't started to rise as much yet. The "golden triangle" as the say- sun to gold coast qld excites me as I believe there is growth to come but prices are on the way up and I don't know how much growth or if it's the right time for the area (? Tad late?)
AVS- what is happening in SA? And which suburbs do u recommend in South Aus? Hackham? Yes or no? Any others?

re renos we hired a handyman had three quotes for approx $6k he has done work for $3k so that was good. Also when we visited area we sourced tiles, carpet etc and someone to install and that was done also. Real estates can usually give recommendation of handyman but get a few quotes
 
It may be worth getting a new val done on your existing property as you've done some renovations and the hope would be that there's been an increase in equity that you can then draw upon to use as a deposit for your second purchase. If second loan is for IP then, yes, IO would be the best way to go.
 
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